Be cautious with a high ADX reading. If the ADX reading hits 50 or above, there’s a strong chance that the asset might pause and change direction, so be careful when the ADX shows a very strong reading.
It’s evident that the market is stable and the SAR isn’t offering helpful insights.
However, in the following image, the ADX value exceeds 25, creating favorable market conditions to make trading decisions with the SAR. It’s clear that the market is on a trend, and thus, the SAR can assist in entering a trade as well as setting a trailing stop loss.
When using the parabolic SAR, settings can be changed to match personal preference.
Setting the SAR farther from price action results in slower reactions and fewer signals, but they are likely to be more reliable. Bringing the SAR closer to the price action leads to quicker reactions and more signals, although they might be less reliable.
Once you’ve chosen the settings you want to test, you’re all set to start gathering data for comparing the outcomes of each setting.
After collecting enough data from trading with the default settings, you can repeat the process with various settings, analyzing the outcomes of a series of trades each time and comparing them with the original set.
It’s worth mentioning that including more trades in each sample over an extended period will make the analysis results more reliable and beneficial.
So far, You have learned –